High-end exercise company Peloton Interactive Inc. (NASDAQ: PTON) started to lose its way as people returned to gyms after the worst of the COVID-19 pandemic. People were willing to pay well for equipment when they exercised from the safety of their homes. Then some customers were injured using its machines. In the meantime, it started to lose money. And it has never come close to recovering. (See the most popular exercise fad every year since 1956.)
The hurdles show up in its stock price, which is down 24% this year, compared to a jump of 22% in the S&P 500. To make matters worse, the price is unlikely to recover. Peloton has made several efforts to improve its fortunes, but none have worked.
Peloton’s most recent quarter shows how deep its trouble is. Its revenue of $596 million was down and 7% from the previous quarter and 3% year over year. Worse, the bottom line was brutal. Peloton lost $159 million. A year ago, it lost $409 million. In the previous quarter, it lost $241 million.
Peloton has broadened the distribution of its equipment to Dick’s Sporting Goods and Amazon. The problem with this is that customers get to see its bikes and treadmills next to the competition. And some of the competition is much less expensive. The section on Amazon that sells Pelotons also offers several other brands, including well-known ones Schwinn and NordicTrack.
Peloton also started to sell used versions of its equipment, which runs the risk of cannibalizing sales of its new equipment. The company also allows people to rent its products. And it offers discounts on new products that run as high as 20%. Taken together, these are not the practices of a successful company.
The shareholder letter attached to the most recent quarterly financial report has a comment from Barry McCarthy, Peloton’s CEO and president: “The bad news is we were less successful at engaging and retaining free users and converting them to paying memberships than we expected.” He has not explained why that will change.
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